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HMRC internal manual

Stamp Duty Land Tax Manual

Notification: Grant of a lease: Example 4a

An agreement or missives for a non-residential lease is/are entered into on 1 May 2009. The lease will be for 10 years from the date of practical completion of certain works to the premises by the landlord at a rent of £200,000 per annum. Practical completion is achieved on 15 June 2009, but the formal lease is not executed for some months. The tenant substantially performs the agreement by starting to pay rent on 15 June 2009 and this is treated for SDLT purposes as the grant of a notional lease of which the effective date is the date the tenant starts paying rent and the term of which runs from 15 June 2009 to 14 June 2019.

The notional lease is for the period from 15 June 2009 to 14 June 2019 with a rent of £200,000 per annum. The effective date of the notional lease is 15 June 2009.

A notional lease such as this must be notified if it meets the normal notification criteria. As this notional lease:

* is for a term of more than seven years
* is for chargeable consideration in excess of £40,000 and
* the rent is not less than £1,000

it must be notified within 30 days of the effective date, in this case the date of substantial performance (i.e. it must be notified within 30 days of 15 June 2009).

When the formal lease is granted, there is a deemed surrender of the notional lease. The term of the formal lease is from 15 June 2009 to 14 June 2019. Overlap relief will be available and will reduce the chargeable consideration for the formal lease to £nil because of the rent free period. As there is no consideration, the formal lease does not need to be notified. The formal lease can in practice be registered using the SDLT 5 issued in respect of the notification of the notional lease.

See SDLTM19605 for details of substantial performance of agreements for lease.